Colorado State University System Financial Statements and Independent Auditor s Reports Financial Audit Years Ended June 30, 2016 and 2015 Compliance

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1 Colorado State University System Financial Statements and Independent Auditor s Reports Financial Audit Compliance Audit Year Ended June 30, 2016

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3 Table of Contents... Page Independent Auditor s Report... 1 Management s Discussion and Analysis (Unaudited)... 5 Financial Statements: Statements of Net Position Statements of Financial Position Discretely Presented Component Units Statements of Revenues, Expenses and Changes in Net Position Statements of Activities Discretely Presented Component Units Statements of Cash Flows Required Supplemental Information: Colorado State University System Schedule of Proportionate Share of the Net Pension Liability and Schedule of Contributions (Unaudited) Colorado State University Retiree Medical Premium Refund Plan (DCP Refund), PERA Subsidy, Umbrella Rx (Rx Subsidy) and Long-Term Disability Income Replacement Plan (LTD Income Replacement) Schedule of Funding Progress (Unaudited) Colorado State University Retiree Medical Premium Refund Plan (DCP Refund), PERA Subsidy, Umbrella Rx (Rx Subsidy) and Long-Term Disability Income Replacement Plan (LTD Income Replacement) Schedules of Employer Contributions (Unaudited) Supplemental Information Colorado State University Retiree Medical Premium Refund Plan (DCP Refund), PERA Subsidy, Umbrella Rx (Rx Subsidy) and Long-Term Disability Income Replacement Plan (LTD Income Replacement) Statement of Plan Net Assets (Unaudited) Colorado State University Retiree Medical Premium Refund Plan (DCP Refund), PERA Subsidy, Umbrella Rx (Rx Subsidy) and Long-Term Disability Income Replacement Plan (LTD Income Replacement) Statement of Changes in Plan Net Assets (Unaudited)... 85

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5 Independent Auditor s Report Members of the Legislative Audit Committee: Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities and the discretely presented component units of Colorado State University System (a higher education institution of the State of Colorado) (the System), as of and for the years ended June 30, 2016 and 2015, and the related notes to the financial statements, which collectively comprise the System s basic financial statements listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audits. We did not audit the 2016 financial statements of the Colorado State University Foundation (the CSU Foundation) or the financial statements of the Colorado State University Pueblo Foundation (CSU-Pueblo Foundation), which are the discretely presented component units of the System. The CSU Foundation and CSU- Pueblo Foundation statements were audited by other auditors whose reports thereon has been furnished to us, and our opinions, insofar as it relates to the amounts included for the CSU Foundation and CSU- Pueblo Foundation, is based solely on the reports of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the System s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the System s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 1

6 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, based on our audits and the 2016 reports of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the businesstype activities and the discretely presented component units of the System as of June 30, 2016 and 2015, and the respective changes in financial position and, where applicable, cash flows thereof for the years then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matters As discussed in Note 1, the financial statements of the System, an institution of higher education in the State of Colorado, are intended to present the financial position, the changes in financial position and, where applicable, cash flows of the business-type activities and the discretely presented component units of the State of Colorado that are attributable to the transactions of the System. They do not purport to, and do not, present fairly the financial position of the State of Colorado as of June 30, 2016 and 2015, and the changes in its financial position, or where applicable, its cash flows for the years then ended in conformity with the accounting principles generally accepted in the United States of America. Our opinions are not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis, other postemployment benefit information, and pension information listed in the table of contents be presented to supplement the basic financial statements. Such information, although not part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements and other knowledge we obtained during our audits of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. 2

7 Supplementary Information Our audits were conducted for the purpose of forming opinions on the financial statements that collectively comprise the System s basic financial statements. The Other Post Employment Benefit Trust Statements, as listed in the table of contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audits of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance. Denver, Colorado December 9,

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9 Management s Discussion and Analysis COLORADO STATE UNIVERSITY SYSTEM Management s Discussion and Analysis (Unaudited) We are pleased to present this financial discussion and analysis of the Colorado State University System (the System). It is intended to make the System s financial statements easier to understand and communicate our financial situation in an open and accountable manner. This section of the financial report provides an objective discussion and analysis of the financial performance of the System for the fiscal years ended June 30, 2016 and This discussion provides an analysis of the System s financial activities based on currently known facts, decisions, or existing conditions. University management is responsible for the completeness and fairness of this discussion and analysis, the financial statements, and related footnote disclosures. The System includes Colorado State University (CSU), Colorado State University Pueblo (CSU-Pueblo), and Colorado State University Global Campus (CSU-Global). CSU-Global issued separate audited financial statements for the year ended June 30, Understanding The Financial Statements The basic financial statements are designed to provide readers with a broad overview of the System s finances and are comprised of three basic statements. Statements of Net Position present information on all of the System s assets, deferred outflows, liabilities, and deferred inflows; with the difference between assets plus deferred outflows less liabilities and deferred inflows reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the System is improving or deteriorating. Statements of Revenues, Expenses, and Changes in Net Position present information showing how the System s net position changed during the two most recent fiscal years. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will result in cash flows in future fiscal periods (e.g., the payment for accrued compensated absences, or the receipt of amounts due from students and others for services rendered). Statements of Cash Flows are reported on the direct method. The direct method of cash flows reporting portrays cash flows from operating, noncapital financing, capital and related financing, and investing activities. Their purpose is to assess the University s ability to generate net cash flows and meet its obligations as they come due. Notes to Financial Statements provide additional information that is essential to a full understanding of the data provided in the basic financial statements. The notes provide information regarding both the accounting policies and procedures the System has adopted as well as additional detail of certain amounts contained in the financial statements. The notes to financial statements follow the financial statements. Required Supplementary Information (RSI) presents additional information that differs from the basic financial statements in that the auditor applies certain limited procedures in reviewing the information. In this report, RSI includes schedules of the System s proportionate share of the Public Employee s Retirement Association (PERA) net pension liability and contributions to the PERA pension. In addition, the schedules of funding status of the postemployment benefits and employer contributions are provided. 5

10 Management s Discussion and Analysis (Unaudited) Management s Discussion and Analysis focuses on the primary government, which is the Colorado State University System. The System reports its activity as a business-type activity using the economic resources measurement focus and the accrual basis of accounting. Financial Highlights Financial highlights are presented in this discussion and analysis to help with the assessment of the System s financial activities. This analysis should be read in conjunction with the System s financial statements and notes thereto, which are also presented in this document. Selected financial highlights for fiscal year ended June 30, 2016 include: The Colorado State Legislature established spending authority to the System in its annual Long Appropriations Bill. The Long Bill appropriated funds include an amount from the State of Colorado s College Opportunity Fund. For fiscal years ended 2016 and 2015, appropriated expenses in the System were within the authorized spending authority. For fiscal years ended 2016 and 2015, the System had a total appropriation of $134.6 million and $121.9 million, respectively. For fiscal years ended 2016 and 2015, the System s appropriated funds consisted of $42.9 and $43.0 million, respectively, received from students that qualified for stipends from the College Opportunity Fund and $91.7 million and $78.9 million, respectively, as state fee for service contract revenue. All other revenues and expenses reported by the System represent non-appropriated funds and are excluded from the annual appropriations bill. Non-appropriated funds include tuition and fees, grants and contracts, gifts, indirect cost recoveries, auxiliary revenues and other revenue sources. The assets and deferred outflows of the System exceeded its liabilities and deferred inflows at June 30, 2016 by $496.0 million (net position). Of this amount, $624.7 million is related to the net investment in capital assets and $135.4 million is restricted for purposes which the donor or grantor or other external party intended. The remaining ($264.1) million is unrestricted. Although unrestricted net position is not externally restricted, it may be internally designated by the System s administration for various purposes. Unrestricted net position was negatively impacted by the implementation of GASB 68 Accounting and Financial Reporting for Pensions in fiscal year CSU-Global continued to see strong enrollment growth in fiscal year 2016 as newly accredited degree programs and new courses were introduced. Financial Analysis The Summary of Net Position presents the assets, deferred outflows, liabilities, deferred inflows, and net position of the Colorado State University System as of the end of the fiscal year. The System s assets and deferred outflows exceeded liabilities and deferred inflows resulting in a net position at June 30, 2016 and 2015 of $496.0 million, and $445.3 million, respectively. In fiscal years 2016 and 2015, the deferred outflows of resources and deferred inflows of resources include items related to the PERA pension whose liability was recorded due to the implementation of Statement No. 68. The University s proportionate share of the net pension liability at the years ended 2016 and 2015, was $578.7 million and $524.7 million, respectively. The net investment in capital assets (e.g., land, buildings and equipment) is used to provide services to students, faculty and administration. Consequently, these assets are not available to fund future spending. 6

11 Management s Discussion and Analysis (Unaudited) The implementation of Governmental Accounting Standards Board Statement No. 68, Accounting and Financial Reporting for Pensions An Amendment to GASB Statement No. 27 (GASB Statement No. 68) in fiscal year 2015 and applied moving forward results in the presentation of 2014 not being comparable to the 2015 and 2016 financial information. Summary of Net Position Year Ended June Current assets $ 565, , ,447 Noncurrent assets, including net capital assets of $1,531,228, $1,308,364, and $1,233,641, respectively 1,905,177 1,758,815 1,504,261 Deferred outflows 111,971 71,904 43,034 Total assets and deferred outflows 2,582,682 2,286,549 1,963,742 Current liabilities 229, , ,069 Noncurrent liabilities 1,842,966 1,645, ,062 Deferred inflows 14,091 2,755 - Total liabilities and deferred inflows 2,086,706 1,841,296 1,064,131 Net position: Net investment in capital assets 624, , ,886 Restricted 135, , ,976 Unrestricted (264,165) (310,493) 169,749 Total net position $ 495, , ,611 The $256.1 million increase in System assets in 2016 over that of 2015 is related to increases in the current assets and nondepreciable capital asset sections. The $109.7 million increase in current assets was primarily due to: a $101.0 million increase in cash and cash equivalents, a $10.7 million increase in receivables, offset by a $2.0 million decrease in inventories and prepaid expenses. The increase in cash and cash equivalents and receivables is partially related to a 5.7% growth in enrollment as well as increases in cash for capital projects. Noncurrent assets increased primarily due to increases in construction in process, $230.8 million, offset by a $76.0 million decrease in restricted cash and cash equivalents. This increase in construction in process and decrease in restricted cash is due to the progress made on large bonded projects. The $40.1 million increase in deferred outflows is mainly due to the System s proportionate share of the earnings on PERA s pension plan investments and experience. In fiscal year 2016, total liabilities increased $234.1 million. Current liabilities increased $36.4 million due primarily to a $36.0 million increase in accounts payable. The increase in accounts payable was mainly due to large capital project payables at yearend. Noncurrent liabilities increased $197.7 million. This increase is primarily due to the $146.6 million increase in bonds payable and a $54.1 million increase in the net pension liability. The increase in bonds payable is due to the issuance of Bond Series 2015 E and F. The $11.3 million increase in deferred inflows was mainly due to the change in the System s proportionate share of PERA and the change in PERA assumptions. The statements of revenues, expenses and changes in net position report the results of operating and nonoperating revenues and expenses during the year and the resulting increase or decrease in net position at the 7

12 Management s Discussion and Analysis (Unaudited) end of the fiscal year. Operating revenues are received for providing goods and services to the various customers and constituencies of the University. Operating expenses are paid to acquire or produce goods and services provided in return for operating revenues and to carry out the mission of the University. Nonoperating revenues/expenses include items determined to not fall in the operating category. Summary of Revenues, Expenses and Changes in Net Position Year Ended June Total operating revenues $ 1,095,275 1,011, ,313 Total operating expenses 1,161,648 1,104,674 1,024,914 Operating loss (66,373) (93,360) (86,601) Net nonoperating revenues 79,207 75,594 71,767 Gain (loss) before other revenues (expenses) 12,834 (17,766) (14,834) Total other revenues 37,889 51,182 31,423 Special items: Transfer to OPEB Trust - - (22,185) Increase (decrease) in net position 50,723 33,416 (5,596) Net position, beginning of year 445, , ,207 Change in accounting principle - (487,774) - Net position, beginning of year as adjusted 445, , ,207 Net position, end of year $ 495, , ,611 The System experienced a $66.4 million, $93.4 million, and $86.6 million loss from operations in fiscal years ended 2016, 2015, and 2014, respectively. The operating loss in 2016 was offset by net nonoperating and other revenues of $117.1 million. 8

13 Management s Discussion and Analysis (Unaudited) Operating and Nonoperating Revenues (Excluding Capital) Year Ended June Operating revenues: Tuition and fees, net $ 500, , ,617 State fee for service revenue 91,723 78,931 72,025 Grants and contracts 291, , ,965 Sales and services of educational activities 37,876 33,763 34,178 Auxiliary enterprises 163, , ,400 Other 10,928 10,133 8,128 Total operating revenues 1,095,275 1,011, ,313 Nonoperating revenues: State appropriations 2,144 2,355 2,472 Gifts 48,507 44,405 42,805 Investment income 7,109 3,901 5,272 Federal nonoperating grants and contracts 41,176 41,116 40,020 Other nonoperating revenues, net 5,805 10,788 5,246 Net nonoperating revenues 104, ,565 95,815 Total noncapital revenue $ 1,200,016 1,113,879 1,034,128 Fiscal year 2016 System operating revenues increased $84.0 million. This is attributable to increases in all operating revenue sources: tuition and fees increased $39.8 million due to increases in both attendance and tuition and fee rates, grants and contracts increased $16.8 million due to increases in federal grants, state fee for service increased $12.8 million as determined by the State of Colorado, auxiliary enterprise revenue increased $9.7 million mainly due to the increase in census, and sales and services of educational activities and other operating revenue increased a combined $4.9 million. In fiscal year 2015 System operating revenues increased $73.0 million. This was primarily attributable to a $50.7 million increase in tuition and fee revenue, a $6.9 million increase in state fee for service, a $9.5 million increase in revenues from auxiliary enterprise activities, a $4.4 million increase in grants and contracts, and a $2.0 million increase in the other operating revenues. System nonoperating revenues increased $2.2 million and $6.8 million in fiscal years 2016 and 2015 respectively. The fiscal year 2016 increase is mainly related to a $4.1 million increase in gifts, a $3.2 million increase in investment income, offset by a $5.0 million decrease in other nonoperating revenues. Federal nonoperating grants and contracts remained constant. The University received $2.1 million, $2.4 million, and $2.5 million in fiscal years 2016, 2015, and 2014 respectively in State appropriations related to severance tax money received for Healthy Forests & Vibrant Communities and the Forest Restoration Project. 9

14 Management s Discussion and Analysis (Unaudited) In addition to operating and nonoperating revenues, the University had the following capital revenue. Capital Revenue Year Ended June State capital contributions $ 19,831 17,153 3,620 Capital grants 8,117 12,591 4,514 Capital gifts 10,451 21,055 21,193 Total capital revenues $ 38,399 50,799 29,327 System other revenues decreased $13.3 million in fiscal year 2016 and increased $19.8 million in fiscal year The $13.3 million decrease is mainly attributed to a $10.6 million decrease in capital gifts. In fiscal year 2015 the Powerhouse Energy Innovation Center received $5.9 million in gift revenue in support of that capital project and $4.7 million in gift revenue in support of the Avenir Museum Renovation & Expansion project. Operating Expenses by Functional Category Year Ended June Instruction $ 307, , ,049 Research 195, , ,094 Public service 101,731 90,677 83,703 Academic suppport 84,590 79,861 78,804 Student services 58,969 51,875 46,913 Institutional support 66,189 63,831 56,194 Operation and maintenance of plant 74,161 73,590 65,493 Scholarships and fellowships 30,185 30,661 24,557 Auxiliary enterprise 148, , ,459 Depreciation 94,958 89,538 77,648 Total operating expenses $ 1,161,648 1,104,674 1,024,914 Fiscal year 2016 System operating expenses increased $57.0 million. This is due to increases in the following areas: $13.9 million in instruction, $8.0 million in research, $11.1 million in public service, $4.7 million in academic support, $7.1 million in student services, $2.4 million in institutional support, $571 thousand in operation and maintenance of plant, $4.3 million in auxiliary enterprise, and $5.4 million in depreciation. These increases are offset by a $476 thousand decrease in scholarships and fellowships. Half of the increase is related to cost of living increases across all functional lines. Fiscal year 2015 System operating expenses increased $79.8 million. This is due to increases in expenditures in all the functional areas: $21.1 million in instruction, $5.1 million in research, $7.0 million in public service, $1.0 million in academic support, $5.0 million in student services, $7.6 million in institutional support, $8.1 million in operation and maintenance of plant, $6.1 million in scholarships and fellowships, $6.9 million in auxiliary enterprises, and $11.9 million in depreciation. 10

15 Capital Assets and Debt Administration COLORADO STATE UNIVERSITY SYSTEM Management s Discussion and Analysis (Unaudited) At June 30, 2016 the System had approximately $1.5 billion invested in capital assets, net of accumulated depreciation of $951.1 million. At June 30, 2015, the System had approximately $1.3 billion invested in capital assets, net of accumulated depreciation of $865.9 million. At June 30, 2014, the System had approximately $1.2 billion invested in capital assets. Depreciation charges were $95.0 million, $89.5 million, and $77.6 million for the fiscal years ended June 30, 2016, 2015, and 2014 respectively. During fiscal year 2016, the System received $19.8 million of state capital contributions for capital construction projects. Of this amount, $16.2 million is related to the CSU campus and $3.6 million is related to the CSU- Pueblo campus. At CSU, $13.2 million is related to the Chemistry building with the remaining $3.0 million related to fire alarm and fire sprinkler projects, natural gas line and water line projects and an elevator upgrade. At CSU-Pueblo, $1.3 million is related to the General Classroom Building, $866 thousand for Security System Phase II, $696 thousand for a roof replacement with the remaining amount related to smaller campus projects. A breakdown of assets by category, net of accumulated depreciation is provided below. Capital Assets, Net of Accumulated Depreciation June Land $ 37,492 32,144 27,074 Land improvements 35,209 34,359 33,557 Buildings and improvements 1,026,612 1,028, ,201 Leasehold improvements 987 2,286 3,735 Equipment 88,163 99, ,831 Collections 5,149 3,808 2,878 Library materials 7,697 8,357 9,216 Construction in progress 329,919 99, ,149 Total capital assets, net $ 1,531,228 1,308,364 1,233,641 In 2016 capital assets, net increased $222.9 million with the increase attributable to construction in progress. The following are the major construction in progress projects: $91.5 million Multi-Purpose Stadium, $78.4 million Aggie Village North Redevelopment, $23.9 million Biology Building, $22.9 million CSU Health & Medical Center Building, $15.4 million South College Parking Garage, $13.2 million Chemistry Building as well as many other smaller projects. In 2015 capital assets, net increased $74.7 million. This increase was primarily attributable to a $140.3 million increase in buildings and improvements, offset by the $65.0 million decrease in construction in progress. The increase in buildings and improvements was largely attributed to the capitalization of the following substantially complete buildings: $75.2 million Student Center project, $49.4 million Laurel Village project, $12.4 million Animal Sciences projects, $11.9 million Eddy Building project, $5.6 million Avenir Gallery Addition, $3.8 million Walter and Suzanne Scott, Jr. Bioengineering 2 nd Floor Tenant Finish, as well as many other smaller projects. These costs were offset by depreciation. The decrease in construction in progress was mainly due to several large projects being capitalized in fiscal year

16 Management s Discussion and Analysis (Unaudited) In 2014 capital assets, net increased $89.3 million. This increase was primarily attributable to a $76.6 million increase in construction in progress, $14.2 million increase in buildings and improvements, $2.7 million increase in land, and a $2.8 million increase in leasehold improvements. These increases were offset by decreases of $3.7 million in equipment, $1.9 million in land improvements, and $1.5 million in library materials. The increase in construction in progress was largely attributed to: $40.5 million Student Center project, $31.2 million Academic Village North project, and $10.2 million Animal Science Building project offset by projects that were capitalized during the year. The increase in buildings and improvements is mainly due to the completion and capitalization of $16.5 million for the Braiden 4 th floor addition, $10.7 million for the Moby Addition & Renovation, $9.0 million for the Behavioral Science Building Addition, $5.0 million for the Lory Student Center Seismic Upgrades, and $3.9 million for the Advanced Beam Lab. These costs are offset by depreciation expense. The increase in land is largely attributed to the acquisitions of three parcels of land in Fort Collins for $2.2 million and Bay Farm for $143 thousand. The increase in leasehold improvements is mainly due to three major projects that were completed, $2.5 million for the EECL, $855 thousand for Online Plus, and $213 thousand for the Northern Hotel. The System had capital construction commitments of approximately $131.8 million at June 30, 2016 including approximately $37.5 million for the Biology Building, $31.3 million for the CSU Health and Medical Center, $21.0 million for the Multi-Purpose Stadium, $19.2 million for the Chemistry Building, $11.1 million for the Aggie Village North Redevelopment, $2.6 million for the South College Parking Garage, and $2.3 million for the Prospect Road Underpass. The remaining commitments are for other small projects at the University. CSU- Pueblo had capital commitments of $427 thousand which is related to $16 thousand for the General Classroom Building, $400 thousand for the Modular Data Center, and $11 thousand to Extend Bartley Boulevard. The System had $1.2 billion, $1.1 billion, and $828.2 million of debt outstanding at June 30, 2016, 2015, and 2014 respectively. Summary of Debt June Debt outstanding: Revenue bonds, certificates of participation $ 1,193,743 1,043, ,860 Capital lease obligations 20,228 21,950 9,358 Total Long-term Debt $ 1,213,971 1,065, ,218 In fiscal year 2016, the System issued $156.3 million in System Enterprise Revenue Bonds, Series 2015 E and F. The proceeds will be used on the following projects: The Prospect Underpass, Research Dr. Parking Lot, S. College Ave. Garage, PERC, the Biology Building, the CSU Health & Medical Center, and the Stadium Academic Space. Series 2015 E-1 bears a 5% interest rate and matures in March 2047, Series 2015 E-2 bears a 5% interest rate and matures in March 2033, and Series 2015 F bears interest rates from 1.75% - 5%, and matures in In fiscal year 2015, the System issued $235.2 million in System Enterprise Revenue Bonds, Series 2015 A, B and C. The proceeds from the sale of the Series 2015 A and B ($167.5 million) was used to construct a 643,000 gross square foot multipurpose stadium to be located between Lake Street and Pitkin Street in Fort Collins, Colorado. Series 2015 C ($67.7 million) will advance refund a portion of the outstanding Series 2007 B bonds, Series 2008 A bonds, and Series 2009 A bonds. The 2015 A, B, and C Bonds bear interest rates from 2.0 to 5.0 percent with final maturity falling in In addition, the System issued $66.7 million in System Enterprise Revenue Bonds, Series 2015 D. The proceeds from the sale of the Series 2015 D was used to defray a portion 12

17 Management s Discussion and Analysis (Unaudited) of the cost of financing certain 2015 improvement projects. The 2015 D Bond has a variable interest with a final maturity falling in In fiscal year 2014, the System issued $138.7 million in System Enterprise Revenue Bonds, Series 2013 E. The proceeds from the sale of the Series 2013 E was used at CSU for the Aggie Village North Redevelopment ($112.3 million), for the Animal Sciences Building Renovation ($3.9 million), to add an entrance to the William O. Eddy Hall (Eddy Building) ($4.8 million), the Walter and Suzanne Scott, Jr. Bioengineering Building remodel ($8.5 million), and the Lory Student Center Seismic Upgrades ($5.0 million). The 2013 E Bonds bear interest rates from 3.0 to 5.0 percent with final maturity falling in In addition, the System issued $26.5 million in System Enterprise Exempt and Taxable Revenue Bonds, Series 2013 C, D. The proceeds from the sale of the Series 2013 C, D was used to construct an addition to and to renovate, improve, and equip the Occhiato University Center on the CSU-Pueblo campus. The 2013 C Bonds bear interest rates from 5.0 to 5.3 percent with final maturity falling in The 2013 D Bonds bear interest rates from 1.0 to 5.3 percent with final maturity falling in Net proceeds of the above mentioned Series 2015 C and previous Series 2013 A, B; and Series 2012 B, C were placed in an escrow account to purchase U.S. Treasury Securities. The principal and interest from the U.S. Treasury Securities is being used to repay the refunded bonds which are considered to be defeased. The Escrow Agent will pay the debt service requirements on each of the remaining refunded bonds. Details of each of the outstanding bonds that were partially or fully refunded by these refunding bonds is listed below. Outstanding Refunded Bonds by Series Refunding Bond Refunded Defeased Call Par Call Price Call Date Bond Obligation Amount (% of Par) Series 2012 B, 2013 A, 2013 B Series 2007 A $ 141,480 3/1/2017 $ 141, Series 2015 C Series 2007 B 2,480 3/1/2017 2, Series 2013 B Series 2007 C 12,400 N/A N/A N/A Series 2015 C Series 2008 A 64,745 3/1/ , Series 2013 A, 2015 C Series 2009 A 53,210 3/1/ , Economic Outlook/Future of the Colorado State University System The Colorado State University System is a group of higher education institutions in the State of Colorado run under one common leadership structure as previously identified. The System receives revenues from numerous sources including students who receive a stipend from the State to cover a portion of their higher education expenses. In many states, this funding is appropriated directly to the institution. In Colorado, it is appropriated for use by the student. The Colorado State University System is authorized to receive $91.5 million in fee for service contract revenue and $43.0 million in student stipends in fiscal year The $134.5 million of anticipated fiscal year 2017 state support represents a $110 thousand increase in student stipends, a $252 thousand decrease in fee for service for a net $142 thousand decrease in state support. The State General Fund revenue is projected on a quarterly basis by the Governor s Office of State Planning and Budgeting. The most recent projection (September 2016) estimates that the fiscal year State General Fund revenue will be $226.5 million short of the amount needed to fully fund the budget and required reserve. Under this forecast and current law, General Fund appropriations subject to the limit in fiscal year can increase 1.2 percent over the previous fiscal year. The State s overall budgetary situation remains 13

18 Management s Discussion and Analysis (Unaudited) governed by the three constitutional budgetary provisions: The Taxpayer Bill of Rights (TABOR), the Gallagher Amendment on property taxes, and Amendment 23 requiring specified amounts in state support for K-12 Education. The budgetary situation for higher education has changed with the implementation of the College Opportunity Fund in fiscal year As a result of legislation adopted in the 2004 session (S.B ), the State no longer provides direct State General Fund appropriation to the governing boards. Instead, the State provides stipends to qualified, resident undergraduate students, and institutions receive fee for service contracts from the Colorado Commission on Higher Education for the provision of other educational services. Finally, S.B also allows institutions of higher education to become TABOR enterprises through this new funding mechanism. Enterprise status eliminates institutional cash funds, such as tuition, from counting against the state s TABOR limitation. As a result of S.B , the Colorado State University System became a qualified Tabor enterprise. In fiscal year 2007, the System was designated a Single Enterprise providing it greater flexibility and expanded financial capabilities in a host of areas. This designation allows the System to raise revenues and finance projects outside of the revenue limits set for most governmental entities. With this TABOR status, the cash funds collected by the System's institutions no longer count toward the State's overall revenue limit. In addition, as enterprises, the institutions can consider issuing revenue bonds backed by student fees for academic buildings. Total enrollment at the System for fiscal year ended 2016 was 52,090. This includes 32,236 at CSU, 4,244 at CSU-Pueblo, and 15,610 enrolled at CSU-Global. Compared to fiscal year ended 2015, CSU saw slight growth in resident instruction and nonresident instruction enrollment of 1.8 percent and.7 percent, respectively. CSU- Pueblo experienced a decrease in resident instruction and nonresident instruction enrollment of 7.0 percent and 3.0 percent, respectively. CSU-Global saw total enrollment grow 18.8 percent from fiscal year ended Total enrollment at the System is anticipated to increase 6.7 percent in fiscal year This includes a 3.2 percent increase at CSU, a 4.7 percent decrease at CSU-Pueblo, and a 16.1 percent increase at CSU-Global. Requests for Information The financial report is designed to provide a general overview of the Colorado State University System s finances for all those with an interest in the System s finances and to demonstrate the System s accountability for the money it receives. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the attention of the Chief Financial Officer, Colorado State University System, 410 Seventeenth Street, Suite 1415, Denver, CO

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20 Statements of Net Position June 30, 2016 and 2015 Assets and Deferred Outflows of Resources Current assets: Cash and cash equivalents $ 453, ,583 Student accounts receivable, net 32,063 31,165 Grant and other accounts receivable, net 59,718 50,191 Student loans receivable, net 3,191 2,911 Inventories 9,404 11,088 Prepaid expenses 7,602 7,892 Total current assets 565, ,830 Noncurrent assets: Restricted cash and cash equivalents 317, ,443 Restricted investments 25,248 25,470 Student loans receivable, net 20,286 20,383 Other noncurrent assets 11,021 11,155 Total noncurrent assets 373, ,451 Nondepreciable capital assets: Land and land improvements 37,492 32,144 Construction in progress 329,919 99,111 Collections 5,149 3,808 Total nondepreciable capital assets 372, ,063 Depreciable capital assets, net: Land improvements 35,209 34,359 Buildings and improvements 1,026,612 1,028,515 Leasehold improvements 987 2,286 Equipment 88,163 99,784 Library materials 7,697 8,357 Total depreciable capital assets (net of accumulated depreciation) 1,158,668 1,173,301 Total noncurrent assets 1,905,177 1,758,815 Deferred outflows of resources: Loss on bond refundings 45,275 47,916 Deferred outflows-pensions 66,696 23,988 Total deferred outflows of resources 111,971 71,904 Total assets and deferred outflows of resources $ 2,582,682 2,286, (continued)

21 Statements of Net Position June 30, 2016 and 2015 Liabilities and Deferred Inflows of Resources Current liabilities: Accounts payable $ 78,470 42,482 Accrued liabilities 76,975 82,445 Unearned revenue 35,009 34,190 Deposits held for others, current 6,712 6,266 Bonds payable and certificates of participation, current 23,249 19,298 Capital leases payable, current 3,884 3,496 Other noncurrent liabilities, current 2,411 2,388 Compensated absences liabilities, current 2,939 2,701 Total current liabilities 229, ,266 Noncurrent liabilities: Bonds payable and certificates of participation 1,170,494 1,023,848 Capital leases payable 16,344 18,454 Deposits held for others 19,140 23,039 Other noncurrent liabilities 5,774 5,946 Compensated absences liabilities 52,496 49,325 Net pension liability 578, ,663 Total noncurrent liabilities 1,842,966 1,645,275 Deferred Inflows of resources: Deferred inflows-other Deferred inflows-pensions 13,496 2,446 Total deferred inflows of resources 14,091 2,755 Total liabilities and deferred Inflows of resources $ 2,086,706 1,841,296 Net position Net investment in capital assets $ 624, ,613 Restricted for nonexpendable purposes 25,421 26,151 Restricted for expendable purposes - other 110,013 90,982 Unrestricted (264,165) (310,493) Total net position $ 495, ,253 See accompanying notes to basic financial statements. 17

22 Colorado State University Foundation (A Component Unit of the Colorado State University System) Statements of Financial Position-Discretely Presented Component Unit June 30, 2016 and 2015 Temporarily Permanently Total Temporarily Permanently Total Assets Unrestricted Restricted Restricted 2016 Unrestricted Restricted Restricted 2015 Cash and cash equivalents $ , ,047 Investments 21, , , ,163 33, , , ,727 Pledges receivable, net - 38,611 6,015 44,626-23,179 1,065 24,244 Property and equipment, net of accumulated depreciation Cash surrender value of life insurance policies Prepaids and other assets Total assets 21, , , ,843 33, , , ,882 Liabilities and Net Assets Liabilities Accounts payable (primarily to CSU) 247 1,013-1, Other accrued liabilities Life income agreements Deposit held in custody for CSU - 1,667 11,342 13,009-1,904 12,337 14,241 Total liabilities 853 2,791 11,608 15, ,710 12,568 16,105 Net assets Unrestricted Undesignated 5, ,454 6, ,439 Board-designated 21, ,354 27, ,871 Endowment investment losses in excess of gift value (5,806) - - (5,806) (1,303) - - (1,303) Total unrestricted net assets 21, ,002 33, ,007 Temporarily restricted - 254, , , ,007 Permanently restricted , , , ,763 Total net assets 21, , , ,591 33, , , ,777 Total liabilities and net assets $ 21, , , ,843 33, , , ,882 See accompanying notes to basic financial statements. 18

23 Colorado State University - Pueblo Foundation (A Component Unit of the Colorado State University System) Statements of Financial Position-Discretely Presented Component Unit June 30, 2016 and 2015 Total Total Assets Cash and cash equivalents $ 1,174 3,528 Accounts receivable Prepaid income taxes - 3 Unconditional promises to give, net 243 1,049 Marketable securities 32,988 30,435 Miscellaneous assets 1 1 Beneficial interest in remainder trusts 232 1,622 Investment in real estate Investment in limited partnership Leasehold improvements and office equipment Less accumulated depreciation (76) (72) Total assets $ 35,196 37,167 Liabilities and net assets Liabilities Accounts payable $ 512 2,165 Other liabilities Total liabilities 550 2,191 Net assets Unrestricted 1,604 4,650 Temporarily restricted 15,412 14,523 Permanently restricted 17,630 15,803 Total net assets 34,646 34,976 Total liabilities and net assets $ 35,196 37,167 See accompanying notes to basic financial statements. 19

24 Colorado State University System Foundation (A Component Unit of the Colorado State University System) Statements of Financial Position-Discretely Presented Component Unit June 30, 2016 Assets 2016 Cash and cash equivalents $ 392 Accounts receivable, net 69 Prepaid expenses 12 Prepaid income taxes 16 Property and equipment, net of accumulated depreciation 53 Deposits 6 Total assets 548 Liabilities and Net Assets Liabilities Accounts payable 3 Accrued and other expenses 3 Deferred revenue 7 Deferred rent 14 Deferred tax liability 18 Total liabilities 45 Net assets Total net assets, unrestricted 503 Total liabilities and net assets $ 548 See accompanying notes to basic financial statements. 20

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26 Statements of Revenues, Expenses, and Changes in Net Position Years ended June 30, 2016 and Operating revenues: Student tuition and fees (including $85,117,and $77,153 of revenues pledged for bonds in 2016 and 2015, respectively, and net of scholarship allowances of $124,141 and $114,432 for 2016 and 2015, respectively) $ 500, ,304 State fee for service revenue 91,723 78,931 Grants and contracts (including $47,618 and $45,586 of revenues pledged for bonds in 2016 and 2015, respectively) 291, ,318 Sales and services of educational activities 37,876 33,763 Auxiliary enterprises (including $125,070 and $117,629 of revenues pledged for bonds in 2016 and 2015, respectively, and net of scholarship allowances of $4,341 and $4,714 for 2016 and 2015, respectively) 163, ,865 Other operating revenue 10,928 10,133 Total operating revenues 1,095,275 1,011,314 Operating expenses: Instruction 307, ,171 Research 195, ,160 Public service 101,731 90,677 Academic support 84,590 79,861 Student services 58,969 51,875 Institutional support 66,189 63,831 Operation and maintenance of plant 74,161 73,590 Scholarships and fellowships 30,185 30,661 Auxiliary enterprises 148, ,310 Depreciation 94,958 89,538 Total operating expenses 1,161,648 1,104,674 Operating loss $ (66,373) (93,360) 22

27 Statements of Revenues, Expenses, and Changes in Net Position Years ended June 30, 2016 and Nonoperating revenues (expenses): State appropriations $ 2,144 2,355 Gifts 48,507 44,405 Investment income (including $1,100 and $728 of revenues pledged for bonds in 2016 and 2015, respectively) 7,109 3,901 Interest expense on capital debt (25,534) (26,971) Federal nonoperating grants and contracts 41,176 41,116 Other nonoperating revenues 5,805 10,788 Net nonoperating revenues 79,207 75,594 Gain (loss) before other revenues 12,834 (17,766) Other revenues: State capital contributions 19,831 17,153 Capital grants 8,117 12,591 Capital gifts 10,451 21,055 Payments from governing boards or other institutions Reductions to permanent endowments (730) (246) Total other revenues 37,889 51,182 Increase in net position 50,723 33,416 Net position, beginning of year 445, ,837 Net position, end of year $ 495, ,253 See accompanying notes to basic financial statements. 23

28 Colorado State University Foundation (A Component Unit of the Colorado State University System) Statements of Activities -Discretely Presented Component Unit Years ended June 30, 2016 and 2015 Support and revenue Temporarily Permanently Total Temporarily Permanently Total Unrestricted Restricted Restricted 2016 Unrestricted Restricted Restricted 2015 Contributions $ ,300 15,906 97, ,999 8,009 70,805 Net investment income (loss) (1,121) (8,374) 86 (9,409) 6, ,083 Actuarial change in value of life income agreements (21) (19) (44) (84) (29) (18) (41) (88) Other revenue - 12, , Net assets released from restrictions Satisfaction of program restrictions 40,473 (40,473) ,910 (44,908) (2) - Expenses Program services Total support and revenue 39,605 44,935 15, ,508 52,298 17,722 8,073 78,093 CSU College of Agricultural Sciences 3, ,981 6, ,147 Health & Human Sciences 3, ,717 7, ,118 Business 1, ,622 2, ,304 Engineering 3, ,838 5, ,706 Liberal Arts 1, ,937 1, ,272 Natural Resources - Warner 2, ,514 2, ,326 Natural Sciences 2, ,069 1, ,441 Veterinary Medicine and Biomedical Sciences 10, ,009 8, ,015 Athletics 2, ,940 3, ,183 Central Development 7, ,480 7, ,270 Other CSU programs 7, ,488 7, ,033 Support services Total program services 47, ,595 51, ,815 Management and general 3, ,172 2, ,797 Total expenses 50, ,767 54, ,612 Change in allowance for uncollectible pledges - 1, , (8) 385 Change in net assets (11,162) 43,537 15,439 47,814 (2,314) 17,329 8,081 23,096 Interfund transfers (843) 850 (7) - (1,196) 1,337 (141) - Net assets, beginning of year 33, , , ,777 36, , , ,681 Net assets, end of year $ 21, , , ,591 33, , , ,777 See accompanying notes to basic financial statements 24

29 Colorado State University - Pueblo Foundation (A Component Unit of the Colorado State University System) Statements of Activities -Discretely Presented Component Unit Years ended June 30, 2016 and 2015 Temporarily Permanently Total Temporarily Permanently Total Unrestricted Restricted Restricted 2016 Unrestricted Restricted Restricted 2015 Support and revenue Contributions $ 54 3,516 2,535 6, ,912 3,026 5,001 In-kind contributions Fundraising revenue Dividends 375 1,276-1, ,789-2,119 Interest Realized loss on sale of marketable securities (11) (38) - (49) (44) (239) - (283) Unrealized loss on marketable securities (331) (1,125) - (1,456) (109) (592) - (701) Net rental income Miscellaneous revenue (1) (2) Changes in the value of split-interest agreements - (13) - (13) - (9) (18) (27) Reclassification of net assets (3,164) 3,872 (708) - (82) 87 (5) - Net assets released from restrictions 7,261 (7,261) - - 3,854 (3,854) - - Total support and revenue 4, ,827 6,968 4,035 (600) 3,003 6,438 Expenses Program expenses 6, ,341 3, ,319 Management and general Fundraising Total expenses 7, ,298 4, ,180 Change in net assets (3,046) 889 1,827 (330) (145) (600) 3,003 2,258 Net assets, beginning of year 4,650 14,523 15,803 34,976 4,795 15,123 12,800 32,718 Net assets, end of year $ 1,604 15,412 17,630 34,646 4,650 14,523 15,803 34,976 See accompanying notes to basic financial statements 25